The SEC has published for public comment a proposed FINRA rule change to the process for selecting arbitrators in FINRA Dispute Resolution arbitrations.  The new rule would increase the number of arbitrators on the lists generated by FINRA’s neutral list selection system that are sent to the parties as potential arbitrators for a particular case.  Currently, in a customer case, the parties receive three lists — chair-qualified arbitrators, public arbitrators, and non-public arbitrators — with eight names each.   Each separately represented party can strike up to four names on each list, and rank the remaining arbitrators on each list.   If, for example, claimant strikes four names on one list, and respondent strikes the other four names, FINRA then must “extend” that list and appoint the next name generated randomly by NLSS, without giving the parties any strikes.  This process of extending a list has been criticized by claimants’ attorneys, as evidenced by the nomiker “cram down” that they bestow upon this arbitrator appointed by extension.

If the proposal is approved, each list would contain ten names.  Since the amount of strikes would remain the same, there is an increased chance that at least one arbitrator on each list is not struck by one of the parties.   Thus, the proposal seeks to decrease the frequency of FINRA’s need to “extend” the list, and appoint a “cram down” arbitrator.  The comment period ends June 16. 

It seems to me that this is a good “tweak” to FINRA arbitrator selection, as it increases party choice and process transparency.  Forcing parties to present their dispute to an arbitrator not of their own choosing contradicts the notion of arbitration as a private, consensual dispute resolution mechanism.